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Bertelsmann's Schmidt Exits in E-Commerce Shake-Up

The head of Bertelsmann’s e-commerce arm became the latest victim of the German media giant’s restructuring on Wednesday when the group announced a major shake-up of its music distribution interests.

Bertelsmann said Andreas Schmidt was leaving the company as the German-based group unveiled plans to fold its e-commerce arm into BeMusic, a new unit that will house its record club, music retailer and other music distribution businesses.

Guetersloh, Germany-based Bertelsmann is sprucing up its sprawling media empire ahead of an expected stock market flotation in the next two to three years, and has been reviewing its business for possible cost-saving opportunities.

Bertelsmann, whose interests span publishing, television and music, has already made major cuts at its music arm BMG, including 1,100 jobs, and the group is also looking to restructure its multimedia interests.

Schmidt, a former CEO of AOL Europe, was key in forging a strategic alliance with controversial song-swap site Napster last year to capitalize on its huge following as part of Bertelsmann’s effort to build an online presence.

However, the alliance has so far failed to result in a new music service despite hefty investment on Bertelsmann’s part, and insiders say Schmidt clashed with a number of key managers.

Bertelsmann said in a statement Schmidt had left to pursue “new entrepreneurial opportunities outside Bertelsmann.”

“He has played a major role in making Bertelsmann the internationally leading enterprise in digital music distribution today,” said Klaus Eierhoff, CEO of Bertelsmann’s DirectGroup division.

Headquartered in New York, BeMusic will fall under the DirectGroup division and will be headed by Stuart Goldfarb, previously CEO of Bertelsmann’s BOL International.

Bertelsmann said its strategic alliance with song swap service Napster would not be included in BeMusic and will continue to fall under the direct management of DirectGroup.

BeMusic will include BMG Music Service, which says it is the world’s largest record club, CDNOW, a leading online music retailer, and digital music locker service myplay.

The business unit will be responsible for Bertelsmann’s online and offline music distribution in the United States.

Aside from music distribution, Bertelsmann’s reorganization efforts have also included integrating its online bookstore BOL into its book club business and moving its stake in Internet agency Pixelpark into its media services unit Arvato.

Bertelsmann vies with France’s Vivendi Universal for the number one spot on the European media landscape, with revenues of around $17.76 billion.

But the group, which employs around 82,000 people, has suffered from lower margins than rivals as private ownership shielded it from the scrutiny of financial markets.

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